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In both countries the food industry is scoring abroad, as exports have emerged as the main driving force of sales. However, some subsectors face problems.

European football championship 2016

Sector playing field: food industry

Belgium: mainly scoring at away matches

The general demand situation for the Belgian food sector is benign, especially due to increasing exports. Quality and safety standards as well as process and product innovation are key selling points abroad. Main destinations remain France, Germany and the Netherlands, while exports to the US, Japan and the BRIC countries are increasing (mainly alcoholic beverages and chocolate), providing good growth opportunities. In total, the food sector contributes positively to the Belgian trade balance every year, while domestic sales experienced a modest decrease in 2015.

However, the profit margins of many Belgian food businesses are negatively affected by high energy and labour costs, which mainly affect smaller businesses. Labour costs are more than 20% higher than in France, Germany and the Netherlands, countries which host big competitors. Another issue is volatile commodity prices. Food producers are forced to pass on any price increases to their customers, otherwise their yields would come under even higher pressure.

While dependence on bank finance and gearing of businesses are generally high in the food industry, banks are generally willing to provide credit to the sector.

Ireland: also scoring abroad

The export-driven food sector represents Ireland’s most important indigenous sector employing 50,000 directly, with 180,000 related jobs in farming and support industries.

Ireland continues to be the largest net exporter of dairy ingredients, beef and lamb in the EU, and has recorded increasing demand for its products in 2014 and 2015. Businesses have benefited from the weaker euro exchange rate, mainly against the British pound sterling, which is the main reason why profit margins have increased. Exports amounted to EUR 10.8 billion in 2015. The weaker euro relative to the British pound sterling and US dollar was estimated to be worth EUR 950 million in 2015, a gain which is unlikely to be replicated in 2016. Domestically, the sector benefits from the rebound of the Irish economy and growing consumer confidence.

The sector still suffers from the lack of capital expenditure during the years of recession. While banks still don’t provide sufficient loans to the food sector, the situation is improving.

Players to watch

Belgium

Beverages is a profitable subsector, which benefits from increasing international demand. 2016 sporting events (the football championship and the summer Olympics) are expected to drive demand.

The dairy segment suffered in 2015 as a result of the abolition of EU milk quotas, but the market is showing signs of stabilisation after a volatile period. Further consolidation in this segment is expected.

The meat subsector suffers from margin pressure and high competition, while a consolidation process is on-going in this segment. Some meat exporters are negatively affected by the Russian food import ban.

The Russian food import ban has also increased pressure on the fruit and vegetables segment.

Ireland

Ireland is the largest exporter of powdered infant formula in Europe, currently producing 15% of the total global output.

There is also sustained growth in exports of Irish whiskey which increased 18% in 2015 and is expected to grow further in 2016.

For the Irish dairy subsector the recent abolition of EU milk quotas and sharply decreasing milk prices have led to a short-term decrease in margins and delays in capital expenditure programmes. The sector still suffers from the lack of capital expenditure during the years of recession.

However, in the long term the lack of quotas is expected to provide new business opportunities for Irish dairy businesses.

Major strengths and weaknesses

Belgian food industry: strengths

Irish food industry: strengths

Strong export with robust growth rates in markets outside the EU

Located in the centre of Western Europe

Leading sector in Belgium for investments, product & process innovation

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